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Overseas Development And Co-Operation

Volume 82: debated on Monday 1 July 1985

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12.50 am

I beg to move,

That the draft African Development Fund (Fourth Replenishment) Order 1985, which was laid before this House on 20th June, be approved.
The purpose of the order is to authorise an increase in our payments to the soft lending resources of the African development fund.

The African development fund is an important part of the international economic system. It was set up in 1973 to contribute to the economic and social development of the regional member countries of the African Development Bank by providing finance on concessional terms. It is a long-term development lending institution. The fund has broadly the same developmental objectives as our own aid programme — to help the poorest countries. We have always supported the fund, and the United Kingdom was one of its founder members. Fourteen independent African members of the Commonwealth have received ADF loans. As part of a multilaterally negotiated arrangement, our own contributions to the fund help to gear up a greater flow of money to the poorer countries, and to the poorest people within those countries.

The African development fund is a joint partnership between the African Development Bank, which holds 50 per cent. of the voting power, and 26 non-regional participating states. Almost 75 per cent. of the fund's loan commitments in 1984 were to the very poorest member countries. This figure is likely to increase this year, as more than 90 per cent. of projects in the fund's pipeline are for countries with a per capita GNP of less than $510. All ADF loans are interest-free, but they attract a small service charge of 0·75 per cent. They are repayable over 50 years, with a 10-year grace period—except for lines of credit, for which the repayment period is up to 20 years including a grace period of up to five years.

The present famine in Africa has emphasised the importance of self-sufficiency in food production. Africa's food dependency on outside sources has grown at an alarming pace, with imports of grain increasing at 11 per cent. a year during the past 20 years. The importance of strengthening agriculture, particularly food production, cannot be doubted. Agriculture has received the largest share of fund resources—just over 40 per cent. in the period from 1974 and almost 42 per cent. in 1984 alone. Transport received the second largest share with 26 per cent., followed by public utilities with 18 per cent. and education and health with 15 per cent. By the end of 1984, the fund had approved 349 loans amounting to some £1,870 million equivalent at current exchange rates. Of this sum, £558 million had been spent. There was a slowdown in disbursements in 1984, however, reflecting the current difficulties for African countries in implementing projects.

The fund is aware of those problems and is trying to help by providing increased technical assistance to improve the preparation and implementation of projects. Five per cent. of the replenishment will again be available for technical assistance. So far, the United Kingdom has committed to the fund £55·2 million, of which about £21·4 million has been disbursed. Negotiations for the fourth replenishment of the fund's resources, to cover the commitment period 1985 to 1987, were successfully completed in 1984. The participating states and the African Development Bank agreed to provide jointly £1,012 million—an increase of almost 50 per cent. over the previous replenishment and within 0·2 per cent. of the target set in the governor's resolution. Our own share of the replenishment, subject to parliamentary approval, will be £30,934,961 at the agreed exchange rate. That is a share of 3·05 per cent. of the target figure. The proposed replenishment and its terms and conditions were approved by the board of Governors of the African Development Bank and fund on 2 November last year.

The replenishment arrangements include provisions which envisage that other countries' contributions may be released more slowly for commitment if one or more of the donors fails to meet its obligations in full or in time. That is a valuable safeguard. I hope that the House feels that the order is of value to the poorer countries of Africa. I therefore commend it to the House.

12.55 am

I welcome a replenishment of this very important and significant fund. Of course, we are well aware of its concessionary nature and the positive contribution that it can play in relation to developments in the African continent.

However, the Government's contribution is less than it should be, and certainly so against the scale of the debt crisis with which Africa is faced. At the moment Africa is very much under-capitalised. The contributions made by the fund are good in principle, but they are slow in disbursement. The scale of the under-capitalisation has already been covered by several contributions on development issues in debates in this House during the past two to three weeks, but it is worth stressing that the net flows of capital to Africa, both private and official, have fallen considerably from $11 billion in 1980–82 to a projected $5 billion for 1985 to 1987. That decrease has been substantially due to the fall in private capital flows something which those supporting market forces in Africa — not unassociated with the current Administration in the United States — should note. It is especially important that we offset that by public capital flows.

The scale of the overall debt for Africa of $80 billion, with an average interest rate of 8·6 per cent., is resulting in a debt service of $11 billion as opposed to $4 billion in 1981. Such figures and proportions put the Government's contribution into proportion.

It is also important to look at the structure of resource distribution in the fund against disbursement by the bank, over the 1980s. For example, at the end of 1981 agriculture constituted 26 per cent., transport 25 per cent., public utilities 25 per cent., industry 16 per cent. and education and health 8 per cent. For 1983 the agriculture contribution went down to 23 per cent., and the public utilities share was substantially up from one quarter to one third. Industry was down by nearly a half in percentage terms. Frankly, one would expect that more funds could be allocated to agriculture, granted the massive and horrendous scale of the drought in the sub-Saharan countries. We are sure that the directors of the fund are doing their best to shift resources into agriculture, but they need more support to do so.

It is interesting to look at the average size of project loan being made. In 1982 it was 11 million units of account, and in 1983 16 million units of account. In other words, on 1983 figures, the African Development Bank accounted for some 40 per cent. of the total cost of projects and there has been a very considerable rise in the percentage of projects covered by the fund.

In one sense, that is to be welcomed, but inasmuch as there tends to be a preference by the fund for financing larger projects—whether dams, roads or public utilities — that share has risen, and we trust that it will not concern itself exclusively with the larger rather than the smaller projects.

Despite what the Minister said—and I noted it with interest — about contributions going to the poorest countries, that is not borne out by the relatively recent figures for the bank. For example, the cumulative loans in 1983 show that Morocco gained 109 million units of account and Ethiopia only 16·5 million. Tunisia gained 163 million and the Sudan only 22 million.

The hon. Gentleman is talking about the bank rather than the fund, if I understand him correctly. The fund is, in effect, the equivalent of International Development Association. The fund does for the bank what IDA does for the International Bank for Reconstruction and Development. Surely it is a little misleading to talk in terms of bank lending, unless I have misunderstood the hon. Gentleman.

No, I think not, much as we would talk in terms of what is the relation of IDA lending to World Bank lending, and not least in view of the overall debt crisis affecting the drought-ridden countries in sub-Saharan Africa. It is precisely this overall context of the role of the fund that I want to stress in giving these figures. I will put them again. Ethiopia is coming low and Sudan is coming low in terms of the African Development Bank's funding so that the concessionary finance is needed more than ever and has to be taken as only offsetting that other weighting in the country distribution of the bank's financing.

As with Lomé and as with many other agencies, as we are well aware, the disbursement has been slow. The figures to the end of 1983 show that nearly 40 per cent. of allocated loans are not yet disbursed. It is clear that in the replenishment of the fund, from the figures which are available, the United Kingdom's contribution is less than half that of France and Italy, less than a third that of Germany and Canada and less than a quarter that of Japan. It is only a fraction above that of Denmark, a much smaller country than the United Kingdom and one that is facing public expenditure constraints. This low contribution from the Government is against the background of the lamentable cuts in overall official development assistance.

The agricultural crisis in sub-Saharan Africa clearly will not be remedied by measures such as lending by the fund alone. We support the fund; we think that it is doing excellent work, but the figures themselves on the overall crisis are illustrative. In terms of the productivity in land, in Niger, in 1920, the average yield of cereals per hectare was about 500 kilos. By the late 1950s it was down to 350 kilos. We see reflected in that long-term trend the declining average consumption per person per year in the African subcontinent from about 220 kilos per person in 1970 to only 180 kilos in 1984.

In terms of the effectiveness of the funding of agricultural projects, and especially smaller scale projects, Idriss Jazairy when here recently stressed to several hon. Members that whereas it cost about $400 per tonne to transport emergency food aid to the highlands of Ethiopia, an agency such as IFAD, for example, by spending $200, could produce one tonne of cereals per year for 20 years. It is this kind of project in which the fund should specialise. The overall figures on the sectoral distribution of its lending show that it is still finding it difficult to be able to gain sufficient absorbtion of those resources.

I end by quoting Edovard Saouma, the Director General of the FAO, commenting on the crisis in sub-Saharan Africa. He said:
"We can beat this crisis. Stage 1 is food relief. Stage 2 is recovery. But famine could reappear if we do not press ahead with stage 3, a new agenda for Long-term development."
Against such a plea and against such a crisis, the British Government's contribution to the replenishment of the African development fund is profoundly disappointing.

1.5 am

While I welcome the announcement made by the Minister tonight, it is sad that the fund, which had aimed to achieve a 40 per cent. target—that is, 40 per cent. for agricultural development during the first three years of ADF 3—is lamentably short of that target.

Considering the soft, concessionary loan funds that are available — not least through the IDA and the African and Asian development funds — it is a pity that full advantage has not been taken of this opportunity for specific emphasis to be placed on agricultural and infrastructural development, which does not require the rate of return, for example, which African Development Bank projects require.

Faced with external debts and the poor economic base of many African countries, much weakened by recession, in addition to the appalling famine conditions and the sustained period of drought, with, at the same time, a population explosion and a declining trend in agricultural productivity—all occurring within the last two or three years — it is a shame that we have not had a greater emphasis from the fund towards agricultural development.

It is important that institutions such as the African development fund should look in particular at medium-term strategies to help overcome the appalling problems that are faced by many countries in sub-Saharan Africa as a result of the drought. It would be beneficial for the fund to examine closely a strategy for medium-term solutions, such as smallholder schemes aimed at relieving the dreadful agricultural decline in productivity.

Apart from hoping that the fund accepts that the challenge for Africa is agriculture—and, therefore, the need to move towards the 40 per cent. target and away from the 23 per cent. figure—I hope that consideration will be given to the slow disbursement that has been characteristic of the fund's activities. This is, unfortunately, a growing problem with all international lending agencies. There seems to be a fixation on paying undue attention to the World Bank project cycle, which can sometimes occupy too much time in project preparation and the pre-appraisal of projects before conditions for disbursement are even reached At a time when disbursement needs to be that much more rapid, I hope that not just the fund but international lending agencies in general will put more energy into the speed of disbursement. Therefore, while welcoming the conservatism for which the fund is renowned in terms of appraising projects, I hope that that will not lead to too slow a rate of disbursement of funds for projects.

I hope that it will also encourage co-financing, particularly with Gulf funds. There is much money still in the international lending agencies in the Gulf — for example, in the Abu Dhabi and Saudi funds and even in the OPEC fund in Vienna. They all have the facility to co-finance. While, therefore, there exist soft, concessionary, loans in various funds, and not least the African development fund, it is important that co-financing with other international lending agencies should take place.

Equally, I urge British companies which are interested in agricultural development in Africa to recognise that the African development fund looks closely at the financing of infrastructural development within an overall project for agricultural development. Companies do not look closely enough at the opportunities available to them for co-financing and working together through the Asian and African development banks, the international lending agencies and, particularly, by way of soft loan funds, when they are appraising financial packages for their projects and investments.

I have always welcomed our having taken on membership of the fund in 1973 and of the bank in 1983. I hope that we will use our influence to persuade the fund to place more emphasis on agricultural development in Africa and to speed up the disbursement process, for such a speeding up is greatly needed today.

1.9 am

I agree with the points made by my hon. Friend the Member for Lewisham, East (Mr. Moynihan), and I wish to add only one. From the Minister's figures, it would appear that the African Development Fund spends 90 per cent. of its money on the poorest countries in Africa—those with an average per-capita income of less than $510—and that its priority is agriculture. As the money spent is substantially more than our bilateral aid programme, one asks whether the African Development Fund could be a vehicle for increased resources, in terms of reaching those who are uppermost in our constituents' minds. Indeed, they believe that our aid should go to support agricultural development in the poorest African countries.

Although I welcome this fourth replenishment, I question the value of the ADF in terms of our total support for Africa, and our commitment to the fund and its development.

1.10 am

I shall confine my remarks to the African Development Fund, which I understand is the subject of the order. The hon. Member for Vauxhall (Mr. Holland) seemed to wish to discuss the International Fund for Agricultural Development and the African Development Bank, which, although worthy of discussion, are not included in the order.

My support for the order is qualified. Insufficient control is exercised by my right hon. Friend's Department over the way in which the African Development Fund spends its money. My hon. Friend the Member for Lewisham, East (Mr. Moynihan) mentioned the slowness of disbursement, which is especially difficult to understand when one considers the serious needs of African agriculture, and the nature of the fund. It shows a lack of imagination on the part of those who administer the fund. We should have a robust representative on the fund's board of directors to ensure that those concession funds are used in the most appropriate way. I do not believe that Britain is exercising its full influence on the board of directors, and I hope that, since we are giving an additional £13 million to the fund, we shall endeavour to play a full part in the control and direction of the fund so that it achieves its objectives in disbursement and in the direction of disbursement. This applies to the administration of the African Development Bank and the African Development Fund, which have been seriously criticised, not only in Britain and other donor countries but in Africa. I urge my right hon. Friend to ensure that those criticisms are satisfied in the robust manner in which he is tackling other international institutions, such as UNESCO.

As to the direction of the fund, I wish to raise two matters. The first is Shelter Afrique, which is sponsored by the African Development Bank but which I believe should also enjoy some of the fund's money. It could be used to get some housing projects off the ground, to accommodate the people who are congregating round the towns of Africa but who have nowhere suitable to live. They are developing slums faster than ever, and this is exacerbated by the fact that the African population is increasing at such an enormous rate. That means that we must put concession funds into housing and into creating an infrastructure of proper drainage, water supplies and sewage systems. We must provide the basic facilities on which African people can, with the help of concession funds, buy building materials and build substantial, traditional houses. Those are not the same as in many other countries; they are particularly African and therefore appropriate for the sort of money that the fund can provide.

The resources of the fund must be directed to agriculture, but it must be to smallholder agriculture, the development of co-operatives and finding ways in which they can afford proper marketing arrangements and the inputs to make their agriculture more prosperous, not only to produce food for themselves and for the markets and growing urban populations which they serve but for export, so that they can earn the necessary foreign exchange to acquire advice, fertilisers, herbicides and pesticides. That is not happening on a sufficient scale.

The fund should also be used to assist water supplies, and in bringing clean water to villages. The expertise is available in Britain. Pumping from rivers, it is possible to get 98 per cent. of the bacteria out of the water through filtration methods developed in Britain on a very simple basis. The fund should be used for that purpose, but the disbursement of the fund is not sufficiently fast. I do not believe that there has been as much imagination and drive as there could have been in recent years.

In welcoming the order, I hope that the Minister will take charge and give full support, advice and direction to the fund and to the bank.

1.16 am

By leave of the House, Mr. Deputy Speaker, may I say that I am grateful for the welcome given to the order from all parts of the House. No one could dispute that it is right that it should go forward or that the work of the bank is of considerable importance.

The hon. Member for Vauxhall (Mr. Holland) said, possibly a little predictably, that our contribution is too small. I do not think that that is fair. In the last replenishment our contribution was £24·2 million. This time it is nearly £31 million, and that represents an increase in real terms of 13 per cent. That is a fairly respectable level, particularly bearing in mind the pressure on our programme to maintain our bilateral side as well as to provide adequate funds to the main claims on the multilateral side which are before us. In addition, I do not need to remind the House of the substantial contributions that we are making to the development of agriculture, especially in Africa, in all sorts of other ways.

It is also fair to make the point that Denmark, which the hon. Gentleman quoted as having a good record—I do not deny it—has traditionally used the multilateral side particularly strongly as a means of operating its aid policies. Perhaps it is not surprising that in percentage terms Denmark shows up very well.

It seemed to me, as I suggested in my intervention, that the hon. Gentleman was confusing the bank and the fund. No doubt he would deny that, but the plain fact is the fund is related to the poorest countries. There is not much point in talking about what the bank can do in respect of them, because it is lending money and trying to achieve the kind of return that the World Bank achieves. These are countries which cannot borrow on those terms; they are not strong enough to do so. That is why we have the fund and overall it does a good job in that respect.

The Minister made that point before and I made my reply to it. But if we are looking at lending overall, and not least lending to the least developed countries and some of the poorest countries in the world, it is directly relevant to see what the bank is doing. The bank is offsetting the concessional lending that the fund is making.

I am not sure that it is worth pursuing the argument, but an essential point is that the bank lends to countries which in this case are not able to afford to repay and would therefore incur debt problems, whereas the whole merit of the fund is that it is a way of conveying resources to the poorest countries. Let us leave it at that.

The hon. Gentleman and my hon. Friend the Member for Lewisham, East (Mr. Moyniham) mentioned agriculture. The fund has allocated 40 per cent. to agriculture cumulatively over the years and 42 per cent. in 1984. Hon. Members on both sides of the House agree about the crucial importance of agriculture and the need to support it. That is a respectable percentage. It shows that the fund gives agriculture a genuine priority. No doubt that is something that we can continue to discuss in years to come, and we can bring our influence to bear on the bank.

My hon. Friend the Member for Lewisham, East mentioned the slow disbursement of aid. That is a problem not just here, as he said, but in many areas in the totality of aid programmes across the world. There has been some improvement in the rate of disbursement. There was a 24 per cent. ratio of disbursement to commitment at the end of 1981 and by the end of 1984 that had risen to a 30 per cent. ratio. That may not be perfect, but it represents a significant increase.

As I said in my opening remarks, 1984 has been a difficult year, for understandable reasons, but at least matters have been moving in the right direction. We are encouraging all the regional banks to do more co-financing. The African bank attracts official resources, but it has not yet been involved much with the private sector. We should like that, but there are well-known difficulties in Africa for the private sector, but certainly the principle of what my hon. Friend the Member for Lewisham, East said was correct.

My hon. Friend the Member for Hertford and Stortford (Mr. Wells) somewhat qualified his support for the order because of one or two specific points that he made. I have already mentioned control, but we are well represented at the bank and it is in our interest to ensure that it operates as effectively as possible. I undertake that we shall do all that we can to bring that about.

It would perhaps be better if I were to write to my hon. Friend about Shelter Afrique.

I listened to my hon. Friend with considerable interest and sympathy when he talked about the kinds of agriculture that should be supported. He was speaking in very much the same terms as my hon. Friend the Member for Broxtowe (Mr. Lester). It is clearly of paramount importance to try to build up the agriculture of Africa among smallholders, the ordinary peasant farmers and so on. That is not the be all and end all of agriculture, because there are other important aspects, but nevertheless we all feel that that is crucial and fundamental to improving the lot of Africa and lots people. We as an Administration support that, and anything that the bank or fund can do in that direction will have our support.

I thank all hon. Members who contributed to the debate. Once again, I commend the order to the House.

Resolved,

That the draft African Development Fund (Fourth Replenishment) Order, 1985, which was laid before this House on 20th June, be approved.